Corporate Bond Trading on an Exchange

An over-the-counter (OTC) market and an open limit order book (LOB) market are the two common mechanisms for organizing financial markets. An OTC is a decentralized market, where trades occur only through dealers. The dealers’ quotes are not fully transparent and are not binding, so customers can shop around and negotiate for the price. An open LOB is a centralized market, where traders submit anonymous orders to a central order book. The quotes are transparent and binding, traders can trade among themselves, and the transactions are transparent as well.

Corporate bonds are traded worldwide mostly in OTC markets while stocks … Read more

Do Contracts for Executive Compensation Maximize Firm Value?

In a recent study, we examine whether executive compensation contracts are designed to maximize firm value. There is considerable debate regarding executive compensation in both the public arena and academia. On the one hand, proponents of the “value maximization” theories claim that executive compensation contracts are optimally designed to attract and provide incentives for executives in a competitive job market to maximize shareholder value. On the other hand, proponents of the “rent extraction” theories suggest that market forces fail in this setting, because executives are able to practically set their own compensation, therefore executive compensation contracts are set sub-optimally … Read more